Solution-Why the npv method is better than the irr method

Why the npv method is better than the irr method

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The Chaplinsky Publishing Company Limited is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $40 million on a large-scale, integrated plant that will provide an expected cash flow stream of $6.4 million per year for 20 years. Plan B calls for the expenditure of $12 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $2.72 million per year for 20 years. Chaplinsky's required rate of return is 10 percent.

Question 1: Calculate each project's NPV

Question 2: Based on reinvestment rates and opportunity costs, give a logical explanation, as to why the NPV method is better than the IRR method when the company's required rate of return is constant at some value such as 10 per cent.

Reference no: EM132527961

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Why the npv method is better than the irr method

Reference no: EM132527961

Reference no: EM132527961

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